More Private Party-Initiated Trade Enforcement Actions

Dear Friends,

We are writing to let you know about two recent court actions, both of which involve allegations of companies evading antidumping duties evasion on imports of wooden bedroom furniture.  They are as follows:

  • The U.S. Department of Justice (“DOJ”) announced last week than a California importer of wooden bedroom furniture, Z Gallerie LLC (“Z Gallerie”) agreed to pay $15 million to settle allegations that it violated the False Claims Act (“FCA”) by underpaying antidumping duties.  The underlying complaint, initiated by a competitor, alleged that between 2007 and 2014, Z Gallerie purposefully misclassified bedroom furniture on import-related documentation in order to avoid paying antidumping duties to U.S. Customs and Border Protection (“CBP”) upon importation.  A copy of the DOJ press release is available here.
  • The American Furniture Manufacturers Committee for Legal Trade and domestic manufacturer Vaughan-Bassett Furniture Co. (collectively, “the Petitioners”) filed a lawsuit in the Court of International Trade (“CIT”) on Tuesday, alleging that the Department of Commerce (“Commerce”) failed to properly investigate allegations that a Chinese exporter of wooden furniture acted as a “funnel” for other Chinese manufacturers to avoid anti-dumping duties on bedroom furniture exported to the United States. Specifically, the underlying complaint alleged that the Chinese exporter, which had been afforded a separate (and significantly lower) antidumping duty rate of ~7% on exports of wooden bedroom furniture, purposefully put its name on other Chinese manufacturers’ wooden bedroom furniture exports to help those manufacturers avoid being subject to the (much higher) PRC-wide entity rate of ~216%.  The complaint alleged that the Petitioners had alerted Commerce to several suspicious furniture shipments in 2015, but Commerce neither alerted CBP, nor initiated its own investigation.  A copy of the complaint is attached.

These cases are significant for several reasons.

First, they underscore the continued trend of private parties initiating their own trade enforcement actions.  While private party-initiated trade compliance actions are already common (as evidenced by our emails below), the types of private parties initiating such actions is expanding.  Here, these cases were initiated by an e-commerce retail competitor and a U.S. trade group, respectively.

Second, they highlight the government’s continued interest to prosecute antidumping and countervailing duty evasion (particularly when the case is served up to them).  In announcing the Z Gallerie settlement, CBP Commissioner R. Gil Kerlikowske stated that “[u]nder the new Trade Facilitation and Trade Enforcement Act, CBP will likely see an increase in these types of settlements as the streamlined processes take effect concerning allegations of duty evasion.  The Act reinforces CBP’s existing authorities and tools to collect and investigate public allegations of duty evasion improving the overall effectiveness and enforcement of CBP law enforcement actions concerning illicit trade activity, specifically in the area of antidumping and countervailing duty evasion schemes.”

Finally, they illustrate that all companies, regardless of size or sophistication, could find themselves entangled in these types of costly enforcement actions if they lack proper internal controls.  In response to its settlement, Z Gallerie released a statement stating that its “intent was never to defraud the government or evade customs duties.  As a small company navigating a complex set of import rules and trade laws, there is confusion about how the government’s anti-dumping order applies to certain categories of wooden bedroom furniture imported from China”.

With good internal controls, most companies will be able to protect themselves from these types of costly enforcement actions.  If you have any questions, or if you would like to discuss these issues further, please let us know.

Best regards,

Ted

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